Friendly reminders: your account is overdue

Nation's Business, March, 1998 by Stephen Blakely

I have a small and very young business and have discovered that past-due accounts -- even for small amounts -- can cause a severe cash crunch. What ideas or advice can I get on collecting past-due accounts? D.C., Columbus, Ohio

You can contact local bill-collection agencies or the American Collectors Association (ACA) in Minneapolis, which represents the industry. The association offers brochures and general information on the debt-collection process and how to select an agency. It can be reached at (612) 926-6547.

Professional bill collector Elizabeth Mallory of Heritage Financial Recovery Services in Upper Saddle River, N.J., recommends that small businesses turn to companies like hers only as a last resort.

Generally when an account is past due, Mallory says, it's because the bill has been lost or a senior manager isn't aware that the bill is unpaid.

The first and often most effective step for a small-business owner is simply to call the debtor company's owner or senior manager and talk politely about the problem. "The most important thing a small-business owner can do is to pick up the phone," Mallory says. "A lot of times small-business owners don't do that. They just send a letter."

Sometimes, especially with big companies, the problem is as simple as a bill that was routed to the wrong person or a clerk unable to get to the paperwork.

The fastest way to resolve a dispute over a product or service is to talk directly to the manager involved, Mallory adds.

Mallory maintains that "it is a very small percentage of people who just don't want to pay" their bills. For such debtors, she says, dunning letters should be sent by certified mail to demonstrate the attempted communication. If the debtor is local, she adds, an action can be filed in small-claims court without having to hire an attorney.

Although individual creditors are exempt from most of the restrictions placed on professional debt collectors under the federal Fair Debt Collection Practices Act, there may be privacy or harassment liabilities if you pursue a debt yourself too aggressively. The Federal Trade Commission enforces the law, and state consumer-protection laws or regulations also might apply.

If you do hire a collection agency, the ACA says, you should use a firm that is licensed and bonded and has trained staff members. In some cases, creditors may be liable for the practices of the third-party debt collectors they hire.

Collection agencies' fees usually are a set percentage of the recovered bill or a combination of a contingency fee plus a fixed fee in advance.

The ACA's 3,700 member firms altogether employ about 65,000 people and work to collect past-due accounts for nearly 1 million creditors. In 1996, professional debt-collection agencies recovered more than $20.4 billion in the United States. The ACA estimates that bad debt costs every American $375 a year, which is passed on in higher costs for goods and services.